Leadership Foundation

21. Personal ethics and values

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Introduction and aim

This briefing note considers personal ethics and values. It highlights the place of the Nolan Principles and the importance of governors understanding that most are also trustees of a charity. As trustees they should be mindful of potential conflicts of interest or loyalty. A key distinction when considering the remuneration of trustees is the separation of public benefit from private benefit. The current briefing note concentrates on the standards of behaviour expected of individual members of the governing body, while the following briefing note (No 22) considers the subject of corporate ethics and values.

Values and ethics

Ethics is defined as the ‘moral principles’ and ‘rules of conduct’, and ‘value’ describes an individual’s ‘principles and standards’. Collectively the two terms are used to describe the behaviours expected of the governing body of higher education institutions (HEIs) and its members.

Standards in public life

The Committee on Standards in Public Life is a nondepartmental body, advising the Prime Minister on standards in public life. It monitors and reports on ethical standards relating to conduct in public office. At the heart of the Committee’s work are the Nolan Principles of public life. The seven principles, first set out by Lord Nolan in 1995, apply to anyone who is a public office holder.

The seven principles are:

• Selflessness – holders of public office should only act in the public interest.
• Integrity – they should not act or make decisions for personal benefit.
• Objectivity – must take decisions impartially, fairly and on merit, using the best evidence without discrimination or bias.
• Accountability – are accountable for their actions and must submit themselves to scrutiny as necessary.
• Openness – should take decisions in an open and transparent manner.
• Honesty – holders of public office should be truthful.
• Leadership – leaders in public office should exhibit leadership and be willing to challenge poor behaviour if it occurs.

What the higher education codes require?

Both the Scottish Code of Good Higher Education Governance and The Higher Education Code of Governance expect members of the governing body to embrace the Nolan principles. For example, the HE Code states: ‘in protecting the reputation of the institution the governing body will want to ensure the highest standards of ethical behaviour amongst its members, who must act ethically at all times in line with accepted standards of behaviour in public life and the interests of the institution.’¹ Despite changes in the system of funding in England, the clear expectation is that governors of ‘public’ HEIs should continue to act as though they are a holder of public office.

Collective responsibility and authority

The higher education code of governance notes that student and staff members of the governing body share the same legal responsibilities and obligations as all other members and must not be routinely excluded from its discussions. Once a decision has been agreed all members are expected to abide by the decision and accept collective responsibility. Reflecting the Nolan principles, members of a governing body should avoid acting either as a representative of a particular group or in a way which undermines their objectivity. The higher education code notes that ‘a member does not necessarily have a pecuniary interest merely because he/she is a member of staff or a student.’ Members are also reminded that they should not make any agreement or act on behalf of the institution when they do not have the authority.

Conflicts of interest and loyalty

As most HEIs have charitable status, governors are also trustees of a charity and need to be mindful of this when discharging their duties. For example, the Charity Commission for England and Wales notes ‘all trustees have a legal duty to act in the best interests of their charity.’² In carrying out their duties governors need to avoid any potential conflicts of interest. A conflict of interest is deemed to arise if ‘the trustees personal interests could, or be seen to, prevent them from making a decision in the best interests of the charity.’³

If potential conflicts of interest do arise, governors have a responsibility to disclose their interest at an early stage and, if necessary, abstain from any involvement in a decision-making process and possibly withdraw from the meeting. Governors should also be mindful that potential conflicts could arise where they hold multiple trusteeships. The individual may not personally stand to gain, but equally their wider interest may prevent them from making a decision in the best interests of the charity. This is referred to as a ‘conflict of loyalty’.

Preventing conflicts of interest and loyalty

Possible conflicts of interest, including multiple trusteeships, should be considered as part of the process by which the Nominations committee reviews the appointment of a possible new member of the governing body. The committee may on occasions seek assurance from a potential member that, for example, their existing or intended responsibilities will not result in a conflict of interest.

Some governing bodies also choose to have a standing item on the agenda at the beginning for every meeting, which reminds members to consider, and declare, any possible conflicts of interest. The clerk or secretary to the governing body will normally note, for the record, any conflicts of interests or loyalty declared.

Register of interests

A further mechanism to assist openness and transparency in decision-making, as well as helping to avoid unknown conflicts of interests, is the compilation of a register of interests covering all members of the governing body, and frequently members of the executive. Typically, the entry for each individual included in the register will contain their business interests and those of any spouse or partner, together with information on any other trusteeships they hold. The register is usually maintained by the clerk or secretary and updated, at least, annually. In England, all HEIs who are exempt charities have been required since 31 January 2011 to provide information on their website about any other trusteeship each member of the governing board holds. HEFCE require the information to be up-dated annually by the 31 January every year.

The Scottish Code of Good Higher Education Governance requires the register of interests to include the secretary (to the governing body) and other senior officers (eg finance director) of the institution. The  register is expected to be published on the institution’s website, with information suitably redacted, as required, to take account of data protection.⁴

Benefits to trustees

There may be occasions when an HEI seeks to purchase specific goods or professional services from a governor, their company or a connected person. This is only allowable under charity law where the supply of services is explicitly agreed in advance of the payment being made, and it is clear that no payment for undertaking their normal duties as a trustee is being received by the governor. The payment is also expected to be for a reasonable amount. This emphasises that unless the governor is being reimbursed for reasonable out-of-pocket expenses great care needs to be taken before there is any agreement as to the supply services to the HEI for which a payment is to be received. Any payments made to a governor or connected person should be disclosed in the HEI’s annual report and accounts.

Private and public benefit

Beyond recovering reasonable out-of-pocket expenses, by tradition governors of ‘public’ HEIs are not be remunerated, reflecting the idea of charities as voluntary organisations and trusteeships as voluntary activities. This avoids mixing private and public benefit. ie. governors give up their time for the benefit of others (public), and not for their own benefit (private). The principle is the individual should not be placed in a position where their private interest might conflict with the public.

Remuneration of governors

The increasing scale and complexity of HEIs and the increasing time commitment and skills needed to carry out the role, especially as chair of the governing body, has led to discussion on the remuneration of HEI governors. Indeed parallels have been drawn with other areas of the public sector where non-executive directors are remunerated.⁵

Although most HEIs governors are not remunerated in a minority of  instances some are. Remuneration of governors raises a number of issues. For example, the principle under charities law is that an individual ‘can only be paid for serving as a trustee where this is in the interests of the charity and provides significant and clear advantages over all other options.’⁶ For institutions in England and Wales the governing body is unable to authorise payments unless there is a suitable authority in the charity’s constitutional instruments, the payment is approved by the Charity Commission or the Courts. In the absence of such authority, payments would be deemed as unauthorised, even where they benefit the institution. They would amount to a breach of trust, for which the trustees could be collectively liable.

Higher Education Code and remuneration

The higher education code reflects the issues highlighted above, and emphasises if the governing body decides to remunerate governors it will need to consider:⁷

• Provisions of charity and employment law.
• Implications for the division of responsibilities between the governing body and the executive.
• Public service ethos which applies generally to higher education governors.
• Need to be explicit about time commitments.
• Need to apply a formal process of appraisal to the remunerated governor.

Proposals for Scottish HEIs

The Consultation Paper on a Higher Education Governance Bill published by the Scottish Government towards the end of 2014, proposes that in future institution should have the option of being able to remunerate chairs of governing bodies. Alongside proposals to make the selection of chairs more ‘rigorous and transparent’ the Bill aim is to give institutions the ability to pay ‘reasonable remuneration’. The suggestion is that such payments would enable HEIs to attract candidates who might otherwise ‘not be a position to undertake the position.’⁸ Payment is therefore seen as a mechanism for broadening recruitment to the position of chair, and potentially diluting the likelihood that those most likely to fulfill the role will be drawn from a relatively narrow set of occupational settings and social economic groups.

Questions to consider

• Do governors have a good understanding and appreciation of the Nolan principles?
• Do members of the governing body accept collective responsibility and act accordingly?
• Is there a clear understanding amongst governors about what they should do in the event of conflicts of interest and loyalty?
• Does the clerk/secretary maintain a register of interests?
• Has the matter of governor remuneration been discussed?

End notes and further reading

1. HE Code, Element 2.1.
2. Charity Commission (2014), Conflicts of Interest, May, p.2.
3. Charity Commission (2014), Ibid., p.3.
4. Scottish Code of Higher Education Good Governance (2013), Responsibilities of Members, Main Principle – Number 8, July.
5. The payment for non-executive directors of Foundation Trusts increasingly common in the health sector provide one example where comparisons have been made.
6. Charity Commission (2012), Trustee expenses and payments, C11, March, p. 3.
7. The Higher Education Code of Governance. Element 7.7.
8. Scottish Governance (2014) Consultation Paper on a Higher Education Governance Bill, p. 13.

May 2015
E: david.williams@Advance-HE.ac.uk
W: www.lfhe.ac.uk/governance
@LF4HE